I sell my Twin Bungalow in June 2018 for ₹45 Lac which was purchased back in May 2005 for ₹20 Lac.
I intend to build an Bungalow with this ₹45 Lac (plus few Lac of Loan from HDFC) in the coming few months; construction shall start in Jan 2019; on my second plot which was purchased in August 2012.
Now the questions are –
- Is there any Capital Gain I should consider before budgeting the construction cost?
- ₹45 Lac is currently in the Saving A/c; Is it advisable to invest this amount in the short term instruments i.e. Liquid Fund or Ultra Short Term Fund for the period of construction (8-10 months) ?
- If answer to 2nd question is yes, then how should I calculate the overall Capital Gain; gain from sale of property & from Debt Fund (if any) ?
- As you are re-investing the whole sales proceeds for in another property, then you no need to pay the tax. But do remember that this re-investment must be done within 2 years from the date of sale proceeds of your earlier property. Also, it should be residential property but not commercial property.
- Yes, you can park so. Prefer Liquid Funds rather than any other funds.
- From the property, I already explained. However, for debt, whatever the gain is there, that you have to pay the tax as per the tax rules applicable to debt funds (You may refer my blog post related to this “Budget 2018 – Mutual Fund Taxation FY 2018-19“.
Thanks for quick and prompt reply!!
1. Yes, it is for residential use only. And hopefully it will be completed within 2 years from the date of sale proceed.
2. About parking the amount in the Debt MF, I have heard/read somewhere that the entire amount of Capital Gain (in my case ₹25 Lac) should be parked in the Capital Gain A/c. within the bank for the construction period of time, is it true?
2) That is Capital Gain Account but not Debt MF.
Let me rephrase my query….
The amount of Capital Gain by sale of property should be park in the Capital Gain A/c until further utilization either to buy or construct the new property, is it mandatory by law?
In simple term, one can not invest/park this Capital Gain in any other instrument except Capital Gain A/c ?
You can park such capital gain amount in a savings account up to the last date of filing IT return of that particular FY. Beyond this, you can’t park it in your savings account. After that last date over, you have to park in the capital gain DEPOSIT account. Refer more about Capital Gain Deposit Account. You will come to know more about it. You can’t invest such sales proceeds as per your wish before you buy another property.